The Liberal Democrats have said that unless the bill goes through they will vote against boundary changes which would benefit the Conservatives.

Last night, Mr Cameron said there would be no deal with Labour - who had threatened to vote against last night's motion despite backing the Bill's Second Reading - because they "cannot be trusted".

He told the influential 1922 committee of MPs in the Commons: “There is not going to be endless haggling with the Lib Dems either. We are going to have one more try to see if we can secure a way forward and achieve a smaller elected element.

"If we fail to do that then we need to draw a line. We are not going to go on and on with this and damage the rest of the Government's programme."

One of the options was to cut the number of peers due to be elected in 2015. He told the MPs that he was looking at a “smaller elected chamber”. The number could be cut from 120 to 92 – to replace the 92 hereditary peers in the Lords.

Another option was to offer a much longer period than the current 10 working days to debate the proposals on the floor of the House of Commons.

Mr Cameron withdrew a motion proposing the 10 day cap on Tuesday afternoon to avoid a certain defeat at the hands of Labour and the rebel Tories in the Commons.

Heading into the 1922 committee meeting, he said he axed the motion because there was “no point in going down to a heavy defeat”.

The new concessions are at the heart of talks between Mr Cameron’s aides and the rebels who will be represented by former foreign secretary Sir Malcolm Rifkind, who voted against a Tory Government for the first time since the 1970s on Tuesday night.

The proposals appeared to catch the Liberal Democrats off-guard last night, with sources saying that they were not privy to what was said at the 1922 meetings.

An aide to Deputy Prime Minister Nick Clegg said: “This is not something that has been put to us. We are going forward on the basis of a Bill as it is.”

Earlier Mr Clegg had made clear that the measure was a “clear commitment” in the Coalition agreement with Conservatives.

During the 45 minute long meeting in a Commons committee room, Mr Cameron also said he wanted the party to rally together and go out and attack the two Eds – Labour leader Ed Miliband and his shadow Chancellor Ed Balls.

Lords reform now looks like it is being kicked into the long grass.

Ministers have dropped plans to set out on Thursday when the House of Lords Reform Bill will be reconsidered by MPs in the Autumn.

Sir George Young, the Leader of the House, had been expected to set out a timetable for another vote to MPs on Thursday.

However The Daily Telegraph understands that this will now not be the case, because of the ongoing the internal debate about the next steps.

The Prime Minister’s spokesman said yesterday: “We want to build consensus. We will be talking to people in the coming days and weeks but there is a majority in favour of reforming the House of Lords.”

The spokesman denied that Tuesday’s set back meant there was no longer sufficient time for the first group of elected peers to take their seats in 2015.

The size of the challenge Mr Cameron faces to win round the rebels was made clear when Adam Afriyie, one of the rebels, suggested it was now time to review the terms of the Coalition.

Writing on the Telegraph’s website in the wake of the revolt, Mr Afriyie asked: “Do we move to minority government, or call an election as newly emerging Liberal Democrat demands undermine good governance?”

Downing Street also moved to play down reports of a late night row between the Prime Minister and Jesse Norman MP, the leader of the rebels.

According on account, Mr Cameron gave Mr Norman the full “Eton hairdryer” treatment just outside one of the members’ lobbies, jabbing his finger aggressively and declaring that his conduct was “not honourable”.

Mr Norman stayed away from Westminster on Wednesday and was unavailable for comment.

Mr Cameron’s spokesman said: “It was not right to characterise it as an argumentative exchange”, stressing that Mr Cameron was merely making clear to Mr Norman that the MP had “misrepresented” his views.

The setback led to Labour leader Ed Miliband questioning Mr Cameron’s authority during exchanges at the last Prime Minister’s Questions before the summer break.

Mr Miliband told Mr Cameron that he “didn't just lose the confidence of his party last night, he is losing the confidence of the country”.